Crown Imports caught in antitrust battle

Corona beer bottles slide along on the production line at the Grupo Modelo SAB beer factory in the state of Zacatecas, Mexico, in a 2007 file photo. (Susana Gonzalez/Bloomberg News )

An antitrust brouhaha in Washington has thrown the future of Crown Imports, a Chicago-based beer importer, into question.

Crown Imports, which ranks third in U.S. beer sales volume, is a joint venture between New York-based Constellation Brands and Mexico's Grupo Modelo, which brews the leading U.S. import, Corona Extra, and other brands. Crown imports those beers as well as Germany's St. Pauli Girl and China's Tsingtao.

As part of its sale to Anheuser-Busch InBev, Groupo Modelo agreed to sell its 50 percent stake in Crown to Constellation Brands for $1.85 billion.

But on Thursday the U.S. Deparment of Justice filed an antitrust suit against AB InBev to block its acquisition of Groupo Modelo. Antitrust officials said the merger would allow AB InBev to increase prices on American consumers.

The sale of Modelo's 50 percent interest in Crown was meant to eliminate antitrust issues, but the lawsuit said the transaction would only create "a facade of competition" between AB InBev and the importer.

"In reality, Defendants' proposed "remedy" eliminates from the market Modelo -- a particularly aggressive competitor -- and replaces it with an entity wholly dependent on ABI," DOJ said in the lawsuit.

The suits cites as evidence part of an internal memo Crown's chief executive, Bill Hackett, wrote to employees after the transactions were announced in June. According to the suit, Hackett wrote, "Our #1 competitor will now be our supplier . . . it is not currently or will not, going forward, be 'business as usual.'"

Under the terms of the proposed merger, AB InBev also had the option to terminate its agreement with Crown Imports after 10 years.

Constellation Brands on Friday attacked the DOJ, saying in a statement that the suit "demonstrates its incomplete understanding" of the proposed merger. Constellation and AB InBev have indicated that they plan to challenge the suit.

In a detailed defense, Constellation said its full control of Crown would improve competition, not harm it. According to the lawsuit, Modelo controls 7 percent of U.S. beer sales, far behind AB InBev's market leading 39 percent.

Constellation attempted to ease concerns that AB InBev's merger with Modelo would lead to higher prices. Hackett said in a statement: "Our Crown team independently develops, implements and refines pricing, promotional and sales strategies for each of our brands in the U.S."

The proposed merger had reduced the uncertainty hanging over Crown Imports because the Modelo-Constellation joint venture was set to expire at the end of 2016. The DOJ action creates a new level of uncertainty, said Benj Steinman, president of Beer Marketer's Insights, a beer industry trade publication.